1. Investment X pays an average annual rate of return of 8%, but there's a 2% chance that you'll lose all your money. What is the expected average annual rate of return on investment (ignore taxes)
-5.26%
-6.25%
-8.00%
-5.84%
2. Compute the real net average annual rate of return on a $5,000 investment that will pay a $1,200 return over 6 years. Your highest marginal tax rate is 30% and the actual rate of inflation over that period averages 4%. Assume that you are certain to get your $5,000 back. Ignore the time value of money.
-1.5%
-1.2%
-3%
-None of the above
3. Suppose that you had budgeted $2,500 for your monthly housing expense (PITI + maintenance). You estimate that your monthly maintenance expense will be about $80, and you're homeowner's insurance will be about $120 per month. Your annual real estate taxes, you estimate will be $2,400 per year. You've been approved for a 7%, 30 year mortgage. Which of the following best approximates the market value of the house that fits your budget?
$312,708
$238,250
$275,540
$216,150